ASG Partners' interview with Lisa Tallquist,Senior Vice President, Bank of America, N.A.
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Are Banks lending to small and mid size companies?
Yes. Despite challenging economic conditions, banks are seeking to provide credit to qualified borrowers. Banks have always required a good primary source of repayment to approve loans and that has not changed. Most banks rely on multiple sources of repayment when assessing borrowing capacity. Typically, banks look at a period of 3-5 years of financial performance with a greater emphasis on the most recent period. Since 2008 and 2009 were difficult for many companies, this has had some impact on lending. However, third party surveys of business owners have found that a decrease in customer demand – as opposed to credit tightening by lenders – is the driving force behind reduced borrowing by small businesses. Until customer demand for business products and services picks up, credit demand will also remain lower.
With the continued economic challenges, banks are looking harder at secondary sources of repayment. These secondary sources of repayment may include personal guarantees from major owners of companies and collateral. Good quality financial statements are also very important in today’s environment.
On a positive note, since bank balance sheets and the long term outlook for the economy have improved, banks have placed renewed emphasis on lending to small and mid-sized companies. As an example, in December 2009, Bank of America pledged to increase lending to small and medium-sized businesses by $5 billion in 2010. Through the first quarter, we loaned $19.4 billion to small and medium-sized businesses. That is almost $3 billion more than in the first quarter of 2009.
How are government programs supporting business lending?
Applicants who demonstrate repayment ability can also explore lending assistance through the Small Business Administration. Bank of America is the nation’s No. 1 SBA 504 lender, and also participates in the 7(a) programs. While they are a small part of our overall lending, SBA products provide options that can be invaluable to some borrowers. For commercial real estate financing, the SBA 504 program allows borrowers to save valuable capital by requiring a relatively low downpayment while providing a low, 20-year fixed rate. The 7(a) program helps banks provide financing where there is not enough collateral to secure the transaction.
What’s new in business banking?
The biggest changes in product offerings for businesses are in the area of treasury services. These services focus on four major functions: receipts; payments; liquidity management; and information. Many companies have taken significant steps to reduce paper processing to lower costs, drive efficiency and reduce fraud. Bank of America, as well as other major banks, offers integrated solutions which provide visibility, control and efficiencies through a full range of services to help businesses collect, pay, concentrate, invest and optimize return on liquidity. As technology continues to advance, these services -- which were once only used by large corporations -- are becoming important tools for small to medium-size companies.
What advice are you offering to your clients given the current credit/economic environment?
In every challenging economy there are seeds of opportunity for those businesses that are capable of identifying and capitalizing on them. As we begin to emerge from the worst economic environment since the Great Depression, those with vision can be better positioned for growth into the recovery.
Currently, demand for growth capital is soft, as most companies have drawn back from investment and are carrying substantial amounts of non-deployed cash reserves as a risk hedge. At the same time, traditional providers of capital (private equity, venture debt, bank lending) have become more risk averse and require additional due diligence before committing resources to the market.
As the economy transitions from the bottom of the downturn and capital begins to move more freely, business owners seeking growth capital should consider the following key activities:
- Improve financial reporting in order to provide quality interim and year-end financial statements. Banks may be able to lend more when reliable interim financial statements are provided. Good reporting also provides the business owner with the financial controls needed to run a growing business and accurately project financing needs. Interim financial reporting is especially important in this environment in order to document improving trends in sales and profitability, which will support additional lending.
- Improving operating efficiency can improve cash flow to support growth. An accurate assessment of how lean the operation is now -- and a commitment to making positive adjustments -- are key to taking advantage of opportunities as the economy recovers. Consider how investors or lenders will view end-to-end operations, and eliminate overhead to assure capital repayment or maximum return on investment.
- Work with your banker to review current cash management, there may be more efficient ways to collect receivables, and fund payables and payroll. Ask about products that can improve overall cash flow that can be used to fund growth.
- Look to outside resources such as CPAs, peer associations and bank client management teams to leverage recent stimulus legislation (i.e. R&D tax credits), apply peer best practices, or implement risk mitigation strategies - all of which can improve bottom line cash flow and attract significant levels of equity or credit.
- Have realistic business plans. For the new business or entrepreneurial venture, assure that business plans and projections accurately address challenges and the controls in place to mitigate those hurdles. Design from the outset efficiency strategies, by researching what tools can be employed to optimize technology and other resources across operations.
- Look to guarantee programs from the SBA and other legislative initiatives when seeking to borrow to finance post-seed growth. Seek out the advice of Small Business Development Centers, a local SCORE chapter, CPA or banker.
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